New Report Reveals Many College Students Cannot Claim Education Tax Credits

Posted By Eliana Osborn on December 1, 2015 at 10:12 am

Since 1998, there have been higher education tax credits available for some Americans. There’s the American Opportunity Tax Credit or AOTC (formerly known as the Hope credit). Credits mean that these come straight off your tax bill, unlike deductions that are less valuable. Unfortunately, a new report from the New America think tank finds that a significant portion of undergraduate students can’t take advantage of these credits.

According to ‘A New Look at Tuition Tax Benefits,’ 40% of undergraduate college students aren’t eligible for tax credits. Many students don’t even file taxes. One of the most dramatic study findings is, “that the AOTC is a boon to students attending for-profit schools and does little for students attending community colleges.” Fully 55% of those taking the AOTC are enrolled at for-profits.

The AOTC is available for tax filers making less than $80,000 (double that for married joint filing). The New America report says that those earning over $106,000 most benefited from the tax credit. This meant that higher earners were eligible for an average of $1,900 versus those earning under $30,000 who averaged just $1,100.

AOTC was slated to expire in 2017, but Congress made it permanent through 2014 legislation. Other changes made at that time attempted to make college tax credits work better for low-income families. One of these changes applies to how Pell Grants are factored into the equation of tuition costs so more, financially-needy students will be able to take advantage of AOTC.

New America used data from the US Department of Education to track how college tax benefits have changed and been distributed over time. In the report introduction, they summarize “a large share of the undergraduate population cannot claim tax benefits, something the AOTC did little to change.” Of the 40% of students that were unable to use the AOTC, more than 60% didn’t have any out-of-pocket college expenses. Grants and scholarships covered all of their needs, leaving no tax liability to be offset.

Notably, compared to the Hope credit, “AOTC nearly doubled average benefits, but did not meaningfully expand the share of the undergraduate population eligible for a tax benefit.”

Though, the ideological bent of the New America think tank must be taken into account, the reality is that tax credits may not be reaching as many college students as possible. This points to the need for constant evaluation of higher education funding and how to best use scarce funds.

Eliana Osborn
Eliana Osborn is an associate English professor at Arizona Western College, with degrees from Brigham Young University and Northern Arizona University. She’s published widely in forums such as The New York Times, the Washington Post, the Christian Science Monitor, and the Chronicle of Higher Education.

Our Goal

At GoodCall®, we believe in something simple: the best decisions are backed by data. Today, that data isn’t always available – and when it is, it’s often incomplete, blocked by paywalls, or requires account signups. We want to change that.

From education news to scholarships to college rankings and beyond, we’re liberating information. And we’re not only giving you more of it. We’re making it more accessible, more digestible, and more adaptable to your unique needs. We’re making it easier for consumers like you to make smart decisions – for your wallet and your life.